Flashback

One of the very first posts that I did on the blog took a look at the current prices versus the traditional average prices. I thought I would take a look back for the benefit of our newer readers and see how close we are now. The data comes from the Nation Association of Realtors.



The first chart shows the median price from 1980 through 2006. As you can see the prices fluctuated a little bit. You can clearly see the early 90's bubble and the mid 90's correction. Compared to this bubble the last one was just a speed bump. I put the red line on the chart, starting in 1980 and continuing through the peak of the last bubble out to today. Using that as a trend line, median prices today would be about $240K. But that trend line is through the peak of the last bubble. A very optimistic trend line. If you were to draw that line through the trough in the mid 90's the median price would only be about $150K. That's probably on the pessimistic side so if we split the middle the median should be around $200K. At the current rate of decline we should hit that in about 6 months. Currently we are at $247k and dropping at about 5% per month.



The second chart shows the ratio of median price to median income. As you can clearly see the ratio of median income to median home price stayed primarily between 2X and 3X, even through the last bubble it just barely broke 3X. But in this bubble it peaked at something like 8X the median income. If my data is correct the median income for Riverside County is currently around $54K. Oh look, we end up at that $150k number again.

I hear a lot of people saying that prices will never fall that low. I don't know why they think that. These ratios have been the same for many many years. Much farther back that these charts show. Has anything changed in the last 10 years? Contrary to Realtor spin, we are not running out of land, you could build millions of homes in the IE on all the vacant land. It sure not the weather. It's not like we live at the beach, half the year it's hotter the hell here. There's not a great job market, the pay sucks out here, which is why 1/2 the population commutes to LA. The air quality is on par with post explosion Chernobyl most of the year. So why would anyone think prices are not going to fall back to traditional ratios. The only thing that is not factored in is the size of the homes. Maybe we should add at least 10% to the median price for the increase in the home sizes over the last few years.

Do you believe that the prices will fall back to traditional levels? If not what is your reasoning?

SB1137 is helping cut the inventory

I've received a few emails asking about the drop in inventory over the last few weeks and some people are wondering (freaking out), "what's going on". Why the big drop? It looks to me as if that new state law, SB1137 is the culprit. It does not look like increased sales are reason for the drop. It looks like there are less new listings hitting the market. Which is what should happen, until the banks contact all the delinquent borrowers. I posted a couple of weeks ago that this law was drastically cutting the foreclosures (temporarily). It may also reduce the sales, since nearly all sales now are foreclosures. With less foreclosures hitting the market there should be less sales. This might be hard to determine though as the sales naturally drop off this time of year anyway.

the weekly tumble

The weekly asking prices continue the downward spiral. The low end seems to be slowing down a bit, only dropping $5k (2.8%) in the last month. The median asking price made a much larger fall. Dropping from $248k all the way to $236K. That's a 5% drop, or 12K in the last month. The high end also lost $12k in the last month.

Trend	09/28/2008	1 month	3 month	6 month	12 month
Median Price	$235,900	-5%	-12.6%	-26.3%	-42.5%
Inventory	12,347	-10.9%	-9.7%	-12.1%	-18.8%

Historical Data

Date	Inventory	25th Percentile	50th Percentile (Median)	75th Percentile
09/28/2008	12,347	$174,900	$235,900	$332,900
09/21/2008	12,368	$175,000	$239,900	$337,655
09/14/2008	15,443	$177,900	$240,000	$339,000
09/07/2008	14,569	$179,900	$244,900	$340,000
09/01/2008	13,852	$180,000	$248,000	$345,000
08/29/2008	13,590	$180,000	$249,000	$349,000

Some of them deserved what they got

8895 Gentile Wind is one of the KB homes in The Retreat in South Corona. This home is a recent REO (like every other house in The Retreat). It sold new from the builder in 2005 for $743k. The buyers put in a little landscaping (and I do mean "a little", a 6' patio slab and a brick planter looks to be about it). The they manage to off load this thing in Nov 07 for 1.3 million??? WTF, that is months after the market imploded. In Late 07 there were already enough foreclosures in this tract to fill a cruise ship. In late 07 there were already homes on this same street listed under $700k yet this home sells for $1.3M. That sale is obviously fraudulent. It has a big red rotating sign on it that says "I screwed the lender". Gawd I wish they would hunt these people down and make them listed to Hanna Montana records nonstop for a few years. Oh wait, that might be cruel and unusual punishment. Eh, who cares.

Obviously the bank got screwed and this house is now listed for $430k. That makes this the cheapest house in The Retreat currently. Not my much mind you, there are several in the mid $400s. This house has fallen 43% from what it sold for new in 2005. Or if you want to go for the shocking (but obviously fraudulent) number, it has fallen 67% from the previous sale for a loss of $870K.

At the current price this house seems like a good deal. But once you factor in the HOA and the taxes this place becomes quite a bit more expensive. Still at this price, I think this will go pretty quick. Assuming there are any buyers left after this week.